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MNI BRIEF: Balance Sheets May Weaken Tightening-ECB's Schnabel

(MNI) ROME

The ECB's Transmission Protection Instrument was crucial to tightening, Isabel Schnabel says.

The European Central Bank’s large balance sheet “may have weakened the transmission of monetary policy during the recent tightening cycle,” executive board member Isabel Schnabel said in a speech about the benefits and costs of asset purchases on Tuesday.

A slow and gradual approach to quantitative tightening “is probably one reason why QT announcements are often found to have smaller effects on bond prices than QE”, she said in Japan, adding that, despite ECB staff estimates that the effect of QT on term premia is not different to that of QE, risk premia remained compressed in many market segments, making financial conditions more accommodative.

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The European Central Bank’s large balance sheet “may have weakened the transmission of monetary policy during the recent tightening cycle,” executive board member Isabel Schnabel said in a speech about the benefits and costs of asset purchases on Tuesday.

A slow and gradual approach to quantitative tightening “is probably one reason why QT announcements are often found to have smaller effects on bond prices than QE”, she said in Japan, adding that, despite ECB staff estimates that the effect of QT on term premia is not different to that of QE, risk premia remained compressed in many market segments, making financial conditions more accommodative.

Keep reading...Show less